As the proposed extension of the Bank Secrecy Act (BSA) to the arts and antiquities market awaits consideration on the United States House of Representatives floor, proponents of the art market are building consensus against the bill among both moderates and conservatives. A recent symposium convened by Case Western Reserve University and the Fashion Institute of Technology (FIT) gathered art market experts with lawyers and money laundering specialists to discuss how prevalent financial malfeasance is in the industry.
Created in 1970, the BSA is supposed to prevent money laundering in major financial institutions by requiring them to, among other things, keep records of cash purchases and file reports against suspicious activity and abnormally high transactions exceeding $10,000. Dealers who sell at least $50,000 of goods would also have to report their records to the government.
The legal definition of money laundering describes the processing of criminal proceeds through legitimate channels to knowingly disguise the illegal origins or ownership of assets. The most common form of money laundering encompasses false accounting practices that obscure a person’s wealth through holding companies, shell companies, and offshore accounts. Tax evasion is sometimes a related aspect of this crime, and is often achieved by hiding taxable income through small transactions and offshore accounts. The real estate industry is particularly beset with examples of such activity. Last August, President Donald Trump’s former campaign chairman, Paul Manafort, was found guilty on multiple counts of bank and tax fraud. He also faced money laundering charges in a separate case filed in Washington DC, but struck a plea deal with special counsel for the Department of Justice, Robert S. Mueller III, before facing those allegations in court.
During her opening remarks at the symposium, Natasha Degen (Chair of Art Market Studies at FIT) noted that despite the public’s perception of the art market as oblique and unregulated, verifiable cases of money laundering are rare. That observation was repeated on the first panel by James McAndrew, a former Department of Homeland Security (DHS) senior special agent of 27 years, who now effectively lobbies on behalf of dealers and collectors. While at the DHS, McAndrew founded its international art and antiquity theft investigations program. According to his professional biography, McAndrew personally recovered more than 2,000 works of art and antiquity, worth tens of millions of dollars, for countries around the globe. So while there is a market for stolen artwork, McAndrew stated,”There has not been an art dealer or collector convicted for laundering money through art. The idea that auctions are nefarious or evil is outrageous because it hasn’t been proven.”
John Byrne, an anti-money laundering expert with a longtime record of advocating for a regulated art market, congenially accused McAndrew of filibustering the panel’s debate. Byrne emphasized that an absence of conviction does not necessarily imply the absence of a money laundering crime. Further to that, he expressed doubt that the proposed BSA extension would continue through Congress unless it was folded into a larger bill. (Luke Messer, the Indiana Republican on the Financial Services Committee who introduced the bill, recently lost his bid for a Senate seat in the GOP primaries.)
According to Andrew Adams, the deputy chief of the money laundering division of New York’s Southern District, admitted that most financial cases involving art concern fraud. His claim was supported by Christopher McKeogh, an FBI special agent for art and antiquities crimes. McKeogh mentioned a couple of case studies from his time in the field, including the controversial upending of Eric Spoutz’s forgery empire. The art dealer was arrested in 2016 for producing hundreds of fake paintings attributed to artists like Willem de Kooning and Joan Mitchell; he was sentenced in 2017 to 41 months in federal prison. Today, McKeogh estimates that Spoutz sold somewhere between 1,000 to 1,500 fakes online through secondary markets and eBay.
In his presentation, McKeogh also referenced an account by Neil Brodie, senior research fellow of Endangered Archaeology at the University of Oxford, claiming that there are at least 100,000 antiquities valued at $10 million or more for sale online, nearly 80% of which are estimated to be either looted or fake.
Virtually none of the panelists during either session of the symposium were in favor of the BSA extension into the arts. The moderate voices of the second panel decried the regulation as needlessly penalizing small businesses for simply entering the market. They pointed to the reality that even small galleries within malls or beach towns would be subject to the BSA regulations if they grossed more than $50,000. Currently lacking the infrastructure necessary to comply with these government regulations, the majority of art dealers would need to implement new policies and potentially hire specialized staff to handle the paperwork — or face steep fines that might climb into the millions.
Still, the championing of small business needs does not accurately represent the effect of the BSA on adjacent regulated industries like jewelry and numismatics. Although sellers of precious metals, stones, and jewels have seen their overhead spike since the BSA extended their sectors in 2005, the industries are still profitable. According to McKinsey, expected global sales of €148 billion (~$171.6 billion) are expected to grow at a healthy annual clip of 5 to 6 percent in the jewelry industry, totaling €250 billion (~$290 billion) by 2020. Where this leaves small businesses, though, is unclear.
Peter Tompa, the executive director of the Global Heritage Alliance, advocates for coin dealers and the bullion industry against BSA regulations. At the symposium, he claimed that his contacts in those industries are struggling to compete in the industry because of the onerous regulations hurting their bottom line. Tompa predicted that eventually, many of these dealers would exit the market because the anti-money laundering restrictions would impose untenable overhead costs to doing business.
When asked about the political motivations behind the bill (for instance, why an Indiana congressman would push regulations on an industry primarily based in New York), panelist Laura Patten, a specialist leader of Deloitte’s Art & Finance Initiative, said that she did not believe that the proposed BSA extension was politically driven. Patten claimed that she knew two advocates of the bill who are self-proclaimed liberals in DC, who saw extended BSA regulations as a method of further protecting items of cultural heritage. As Columbia University law professor Jo Backer Laird noted, further regulations are an easy political accomplishment but mean very little legally if they either cannot be properly enforced or are repetitive. The majority of panelists agreed with her sentiment, citing the many preexisting guidelines that prohibit the sale and circulation of looted artifacts, such as the Hague Convention and UNESCO Convention that focuses on protecting cultural property in armed conflict.
If the BSA was created to discourage the illicit laundering of money for terrorist and criminal organizations, then Tompa thinks the law’s application to the arts is misplaced. Like other panelists, he noted the impracticality for criminals to legitimize their money through the art market because it is a relationship-based business with high costs of entry and no guarantee of certain profit. Furthermore, major auctioneers like Christie’s and Sotheby’s have sizable legal departments and compliance guidelines that could route out malfeasance. Still, it’s not entirely unfeasible that criminals could establish channels through auction houses through the use of shell companies and secondary representatives who could guarantee the sale of an object for laundering purposes.
Addressing such a hypothetical, Tompa claimed that ISIS had only made profits in the hundreds of thousands from their sale of looted Iraqi and Syrian antiquities — an amount far too low to justify the caliphate’s involvement in the art market. Other estimates, however, put their proceeds at far higher numbers between $4 million and $7 billion.
Ultimately, the panelists and audience engaged in speculation about why the art market has such a shady reputation when there are no verifiable cases of money laundering. Laird observed that just because something is perceived does not make it true. The opacity of the art market, McAndrew earlier justified, is primarily to ensure the anonymity of wealthy collectors who want to protect their identities to avoid potential burglary threats.
Panelists also tried to make the case that the arts, unlike other regulated industries, deserves exemption from the BSA because it’s a cultural object and not a commodity with a set value. The subjectivity of price distinguishes it from the sale of other objects like precious metals and jewelry. One audience member adroitly questioned this presumption, indicting art’s special non-commodity status in the process. She cited a 2017 Deloitte Art and Finance Report that estimated that collectors would spend $2.7 trillion on art by 2026. By comparison, the United Kingdom, the world’s fifth largest economy, has a Gross Domestic Product (GDP) of $2.6 trillion. Comments from the audience contrasted with much of what was said by the invited panelists in the two sessions. As one audience member reasoned, if the purveyors of art continue to treat art as an asset class, then governments should treat it as such and regulate. Whether through the BSA or new regulations, the numbers certainly indicate that further regulatory restrictions on the art market will eventually be needed.